Sánchez government to add €50 billion to Spain debt before general election in 2023
Socialist-communist government will do an additional "solidarity tax" on large fortunes but promises to pay for "historic" spending by cutting taxes for workers.
Today, Spain’s socialist-communist government presented its 2023 budget, which it labelled as being all about “social justice and economic efficiency”, perhaps thus showcasing the two-headed nature of the current executive. Can you spend more on social justice while at the same time being more economically effiient? The Finance Ministry made a special point in the presentation of it being “the greatest social spending in history”, about €275 billion in grants, education, home care, healthcare, culture, research and development and gender violence. The Spanish government wants you to know that, according to its calculations, that historic amount of welfare spending is 35% more than the last conservative government under Rajoy in 2018. They have also announced an 8.5% pensions increase, close to the rate of inflation, and a 9.5% public pay increase over three years.
The opposition Popular Party clearly thinks this is a bad plan: “The PSOE’s measures are too late, too little and too improvised”, the party tweeted. Feijóo described it as an “antisocial” budget and wants tax cuts now, preferably even three months before he became PP leader in April: “If the government really wants to do a social fiscal policy, it must cut income tax from January 2022 for lower and middle incomes, and cut VAT on basic items in the shopping basket”.
How does the Spanish government mean to pay for its plan? According to the document the Tax Ministry has sent along, by cutting income tax for those earning less than €21,000, by cutting income tax for the self-employed and by cutting corporation tax for small businesses. There will be tax increases for capital gains above €200,000 and “a Solidarity Tax for large fortunes and a limit on compensating for losses in consolidated groups, which will mostly affect big business”. There will only be a 3.9% of GDP deficit, the Finance Ministry announced happily.
That is about €50 billion they don’t have but will spend anyway.
The new government document talks about culture vouchers, social thermal vouchers (electricity and gas bill help) and “youth rent vouchers”, but not about Spain’s 10- or 30-year bonds, which is what the government will need to issue to pay for their historic social spending with money that does not currently exist and that one day future generations will somehow have to try to pay off in some unspecified manner.
Spain’s 30-year bond is now up to about 3.5% and the 10-year version about 3%. In 2018, when the conservatives were last in power, they were at about 2% and 1%, respectively. The bond yields over the past few months, looking at the graphs, are trending upwards. With everything that is happening in the world economically at the moment, who knows what they will look like when it comes round to actually rasing the funds the government thinks it needs.
There is no mention either of the possiblity of reducing the national debt at all, which as we saw in August, is somewhere between €1.5 trillion and €2.5 trillion, depending on how you calculate it. Spain’s socialist-communist coalition government, with Pedro Sánchez as PM along with whoever is currently in charge of Podemos, in what is likely to be their last budget before the general election next year in 2023, will only add to that figure.
Are they really communists?